JOURNAL EDITORIAL REPORT

'Journal Editorial Report': Reid's Lame Duck Agenda

This is a rush transcript from "The Journal Editorial Report," November 27, 2010. This copy may not be in its final form and may be updated.

PAUL GIGOT, HOST: This week on the "Journal Editorial Report," Harry Reid's lame duck agenda. With just three weeks left, you wouldn't believe what he's got planned.

Plus, the uncertainty principal. With record deficits, looming tax hikes and hundreds of new regulations coming down the pike, American businesses are on a capitol strike. Can a Republican Congress get them moving again?

North Korea's latest provocation brings an American ally to the brink of war. Is it time for a new American strategy?

Welcome to the "Journal Editorial Report." I'm Paul Gigot.

Democrats may have lost the House and six Senate seats on November 2nd but you might not know it from their lame duck agenda. Majority Leader Harry Reid told Republicans in a mere three weeks he wants to pass a Food Safety Bill, the Immigration Dream Act, a repeal of "Don't Ask, Don't Tell" for gays in the military, a 9/11 Rescue Worker's Relief Act, a spending bill for fiscal 2011, an extension of some Bush-era tax cuts and estate tax reform, not to mention the new START Nuclear Treaty with Russia. So what will he actually get done?

Joining the panel this week, Wall Street Journal columnist and deputy editor, Dan Henninger; senior economics writer, Steve Moore; and Washington columnist, Kim Strassel.

So, Kim, how much of the list is serious or is Harry Reid trying to placate his left flank?

KIM STRASSEL, WASHINGTON COLUMNIST: Well, this is how they got in the situation, is Harry Reid put up these things to gin up enthusiasm among the liberal base prior to the election and the plan was going to be to make them too toxic to gain any Republican support and then blame Republicans or obstructionism.

GIGOT: It didn't work very well, Kim.

STRASSEL: No.

GIGOT: But why do it now, after the fact? That failed. Why do it now?

STRASSEL: Well, now, he's on the hook to some of these groups to actually make some progress.

The reality is most of this is not going to pass. Any one of those items, in and of themselves, could take three weeks to debate and get through. They're going to end up having to focus on the stuff that is absolutely necessary. They're likely to pass this Food Safety Bill, which is already teed up to get a vote and then, you know — look, because the Democrats ignored some big things this year, like passing appropriations bills, the government runs out of money at the end of next week.

(CROSSTALK)

STRASSEL: So they're going to have to deal with funding the government and probably the tax issue. I wouldn't expect more.

GIGOT: Republicans still only have 41 Senate seats and they'll get 42 when Mark Kirk of Illinois comes late in November. But that means they could still only afford to lose those two. I mean, if they lose those two, the Democrats have their 60 votes to pass something. So could they slip one or more of these items through?

STEVE MOORE, SENIOR ECONOMICS WRITER: You know, the real — let's celebrate the really good news, which is not on your list. Remember, a few months ago we were warning they would use this lame duck agenda to pass cap-and-trade legislation and the union Card Check. And the good news is those are — looks like they're completely off the table.

You're right that Democrats will make a big push to pass some of this stuff that they weren't able to get through during the regular session, but we shouldn't call this lame duck session. We should call it the lame agenda session. And really the only thing — I agree with Kim. They're obviously going to have to pass a budget so we can fund the government the next few months.

GIGOT: Right.

MOORE: And the big fight of course will be whether they can get the tax cuts extended before the first of the year.

GIGOT: Dan, why don't Republicans just say, no mas. You lost, we'll do over the budget, and let's sit down and talk seriously about the tax issue. Because those expire — those lower rates expire within a month, December 31st. And that means withholding would have to change as of January 1st, so, well, tens of millions of Americans would see the taxes go up.

DAN HENNINGER, COLUMNIST & DEPUTY EDITOR: Well, I agree that — I think that's exactly what the Republicans do, push the discussion over to taxes, which I suspect the Democrats don't want to talk about. They have to talk about it. They just lost to Congress and now they're going to allow taxes to rise on the American people on January 1st? It just can't happen, though they may go down that route.

Now, I think that the Democrats are dug in on the upper bracket thing, saying it will increase the deficit. They have some help with their arms around the deficit issue.

GIGOT: Right.

HENNINGER: If they want that issue, they can have it. What the Republicans should do is say, tax cuts are about economic growth. The reason both the American people just voted the way they did is because they want the economy growing again. And if we're going to do that, we need to continue these tax cuts for everybody.

GIGOT: Well, if — if Pelosi, Speaker Pelosi and Harry Reid allowed the taxes to come up for a vote, Steve, would they — the tax cut extensions, for let's say two , one or two years, would they pass?

MOORE: Dan and I had this debate I think two weeks ago on the show, and I said I thought they would pass. I hate to say this, I'd never say I'm wrong, but I'm kind of coming over to Dan's position.

(LAUGHTER)

I think that the left is digging in so much, Paul, on this issue, the union, Center for American Progress. You saw Chuck Schumer has a bill saying only do it for people with less than a million dollars. I'm not sure the left allow Nancy Pelosi or Barack Obama to get this done.

GIGOT: Well, there are a lot of Democrats who aren't part of the left or don't want appear to be anymore part of the left —

MOORE: Correct.

GIGOT: — who would like to vote for this. That's why I asked you if it could pass if it was put to an honest vote. There are an awful lot of blue dogs who are going to run for the election two years.

MOORE: Yes. That's true.

GIGOT: And there's a dozen Senators who are rookie Senators who are up in 2012, some from red states. So why won't they go along with the extension?

MOORE: Because I think Pelosi will say — this is the last hurrah and I think she's going to put down the iron fist. By the way, it's probably too late—

GIGOT: The iron fist having lost 63 seats in the House.

(LAUGHTER)

Our iron is this fist.

(LAUGHTER)

I mean, what —

MOORE: But one last point about this. It's already too late to change the tax forms. It's amazing. Here we're 40 days from the start of the year, no business, no investors, no worker knows what their tax rate will be next year.

HENNINGER: Everyone needs a way out of this dilemma that they've got. We've talked about this, the deal that probably will be made is, unemployment benefits expire on November 30th, the Democrats will say, if you'll extend those unemployment benefits, we'll do the tax deals and they all go home and tell their constituencies they did something for them.

GIGOT: Kim, I guess everybody is sitting around waiting for a signal from the president. The White House has been all over the map on this. If the president says I'm willing to negotiate with Republicans on, say, a two year extension, then it would sail through, would it not?

STRASSEL: I think, absolutely. But we have not heard the president address the question of a deal. We've had some advisors come out and suggest they might be open to it. The president has not made the statement. If he did, I have no question that this is something that both parties, there would be real numbers of members who would be happy to vote for this and kick that can down the road for another two years and go home.

HENNINGER: But they had a meeting in the White House with the president on the tax issue.

GIGOT: Democrats did.

HENNINGER: Yes. And the president told them, you guys have to work out a compromise. He's doing the same thing he did on health care, dumping it onto Nancy Pelosi and Harry Reid and saying you take responsibility.

MOORE: That turned out so well.

HENNINGER: Yes.

(LAUGHTER)

GIGOT: Even though taxes would go up on January 1st, it wouldn't be so bad. Republicans would come in and put a bill on the president's desk or at least force — the House Republicans would pass it, the Senate would have to consider it and I think that could lead to —

MOORE: He'd still have to sign it, Paul.

GIGOT: — achievements. That's true.

(CROSSTALK)

GIGOT: Well, those tax hikes are just one of the factors that have businesses running scared these days. Also at play, the hundreds of new financial, health care and environmental regulations coming down the pipe.

When we come back, can the incoming Republican Congress do anything to ease the economic uncertainty? Our panel weighs in after the break.

(COMMERCIAL BREAK)

GIGOT: Well, it seems like the only thing that American businesses are certain about these days is uncertainty. And with record deficits, the future of the Bush tax cuts still very much in doubt, and hundreds of new financial regulations, health care rules and EPA mandates coming down the pike, all eyes are on Speaker-elect John Boehner and the 112th Congress, hoping for some relief. But just how much difference can a Republican House make?

Steve, in 1994, when Republicans took the House, and Bill Clinton was president, you had led to a takeoff of stock and bond markets, and a decade of growth, unleashing a lot of investment that had been penned up. Same thing going to happen this time?

MOORE: I think the natural animal spirits of the economy are pointing to a nice recovery over the next few months. We're seeing good corporate profits and I think we'll get a good jobs report next week.

The two things that really worry me, one is what we just talked about, whether — if this tax cut doesn't go through, if we let those tax rates go up next year, I do think that could torpedo any kind of expansion. And the other one is, what people are paying attention to is, even if the Obama administration doesn't pass another single thing of legislation, they can - -

GIGOT: And I think they won't.

(LAUGHTER)

MOORE: Let's hope not. They can do so much damage for the regulatory process. EPA alone is destroying hundreds of thousands of jobs through not allowing mining and —

GIGOT: Well, that's right.

But this is baked in the cake too because of the legislation, Kim, that's already passed. The financial reform bill has 243 major rule makings, believe it or not, 243! And you also have the EPA passing — moving all kinds of regulations through and then there's the health care bill. How much harm is that doing to business investment?

STRASSEL: Dramatic harm. And it's coming in addition to the tax thing. I mean, it's got to be put together, this double whammy of it.

Companies do not know, from one day to the next, what things they are going to be hit with. And this goes back to what you asked, what can the Republicans do. But the problem is they can't do much. You don't govern from Congress. You don't have control of the executive branches. They can review some of the stuff and, in some cases, they are putting pressure on Democrats to pass legislation that will, for instance, delay it. One example, in the Senate, sort of push off the EPA's carbon restrictions for a few years.

GIGOT: That has a bipartisan support. That does.

STRASSEL: That has bipartisan support. So in that case, when you can pressure Democrats to do this, the president might be inclined to go along. But anything else that the Republicans just manage to eke through, turning back these regulations, he'll just veto it. And you need the votes for override, and that's tough.

GIGOT: I don't know, Dan, that the president himself understands the impact this is going to have on the economy.

(LAUGHTER)

I mean, I'm giving him the benefit of the doubt here.

HENNINGER: Yes.

GIGOT: They built up an enormous log jam of things that are — that still have to flow through the government and the bureaucracies, and ultimately affect the real economy, the decisions that actual business people and entrepreneurs have to make.

HENNINGER: You're making a point here, Paul, that is really a kind of tall-weeds point that most people don't focus on. They come in, unlike Republicans in 1994, passed two 2,000-page bills, and you don't just wave that at the country and the average businesses goes, oh, OK, this is what I have to do.

(LAUGHTER)

This is the administrative state. And anyone who has been in Washington for a long time understands that the first thing you do is you take every rule and publish it in something called the Federal Register.

GIGOT: Right.

HENNINGER: And then you have 90 days to come. And every lobby in Washington descends on the rule and you grind it — it usually takes about three years. Does the president understand?

GIGOT: And these rules are not five sentences.

HENNINGER: No.

GIGOT: These are often hundreds of pages.

HENNINGER: Open to interpretation.

GIGOT: And to legal challenge.

HENNINGER: Yes.

(LAUGHTER)

MOORE: But you've left out an important word in this whole thing, oversight. And I think this might be the most important change that comes with having a Republican House is the Republicans basically having oversight over these agencies. They are rogue agencies. They act like independent fiefdoms over business. And that will be the real issue, is whether they are willing to use — and one way you use oversight is through the power of the purse. You basically take money away from these agencies.

GIGOT: So you deny them the funding to be able to implement the rules?

MOORE: Yes, the most obvious example is with Obamacare. But you could do that with the EPA, the Interior Department. You could — the Republicans, if they wanted to, they could defund Elizabeth Warren. She has this new consumer —

GIGOT: Financial bureau.

MOORE: Right.

GIGOT: OK.

What about the taxes, Kim? Let's say the Republicans have settled for a two year extension of all of the Bush tax rates. That's obviously better than a tax increase January 1st.

STRASSEL: Right.

GIGOT: On the other hand it's still only two years, so businesses say, in two years, I'm still going to be hit with a tax increase, or might be. Does that really do enough to help the economy?

STRASSEL: Paul, I would argue what they really get is kind of one year of knowing what they're going to have, because then the following year is all about the tax debate ramping up again, and not knowing what's coming.

MOORE: Right.

STRASSEL: The real problem is people, I don't think, estimate, in particular for companies, this dividend and capital gains rate hike. We are talking about billions upon billions of dollars. But they literally, right now, if they don't know if they will or won't have in the future?

GIGOT: Right.

STRASSEL: I mean, and that affects every business decision they make, so they're in a state of paralysis right now. One year extension, it helps a little bit. But if you really wanted to boost the economy, you would be talking about permanent extensions.

MOORE: The flashing neon sign for why we need a flat tax. Why don't we just fix the tax systems once and more and stop them monkeying with it?

GIGOT: I love that phrase, I love that phrase, "once and for all."

(CROSSTALK)

(LAUGHTER)

GIGOT: La La Land, I'll tell you.

Steve, thank you.

MOORE: This Thanksgiving weekend.

(LAUGHTER)

GIGOT: Come back to the weekend, North Korea ups the ante, launching an unprecedented attack against America's allies in the South. How should the United States respond?

(COMMERCIAL BREAK)

GIGOT: President Obama this week vowed to defend South Korea after what the White House branded a provocative, outrageous attack by the North on its neighbor. North Korea fired dozens of artillery shells at an island in South Korea Tuesday, killing two soldiers and setting dozens of houses on fire. It is the first time since the end of the Korean War in 1953 that North Korean has fired on South Korean civilian territory. The attack is the latest in a series of confrontations that have aggravated tensions on the peninsula.

Last week, the North gave visiting western scientists a tour of a previously undisclosed uranium enrichment facility. And, in March, torpedoed and sank a South Korean naval vessel, killing 46 sailors.

Wall Street Journal foreign affairs columnist, Bret Stephens, joins us with more.

Bret, what is North Korea up to here?

BRET STEPHENS, FOREIGN AFFAIRS COLUMNIST: This is a pattern that we've seen before in the late 1980s, when Kim Jong-Il was coming on the scene to replace his father, there were also a series of North Korean actions. They bombed a Korean airliner and tried to assassinate Korean officials. Now Kim Jong-Il is ailing. He wants to install his youngest son, Jong-Un, and we've seen this series of escalations in a similar —

GIGOT: But what does he hope to accomplish with that?

STEPHENS: I think what he's trying to do is test the loyalty of his military officials, demonstrate —

GIGOT: Will you follow my son?

STEPHENS: Will you follow my son, demonstrate a certain kind of toughness. And there's something else besides. The North Koreans are hoping, through a series of provocative — these sorts of actions, to tell the United States, to tell South Korea, the pressure against us won't work. You have to come to the table because we just might be crazy enough to go further.

GIGOT: But they're willing to risk war to do that.

STEPHENS: Every single time they have done this, the West and South Korea has responded with conciliation, rather than upping the ante. But there's a pattern in which North Korean misbeliever is always — North Korean misbehavior has always been rewarded.

GIGOT: So they don't think anymore — they don't think it will lead to more —

(CROSSTALK)

GIGOT: OK, Dan, so, Bret, is right. We've had this response over time, let's always go back to the table. So they get rewarded in that for misbehavior. What — and even violent behavior. So is there a better strategy?

HENNINGER: Well, I mean, the strategy, I think, has to be related to the fact that they're pursuing this nuclear capability. I mean, that's obvious. Are we going to let them have it? They're also selling centrifuges and uranium probably to Iran and Syria.

GIGOT: They already have, people think, six to nine bombs based on plutonium. This uranium enrichment is new.

HENNINGER: Right.

GIGOT: Although we've known about it off and on for — they've admitted it and denied it and admitted it again that they're doing this alternative uranium enrichment, which is what the Iranians are doing and would allow them to build more bombs.

HENNINGER: We need to be on an execrable path to nuclear capability by one of these nations.

There's a couple of small facts that aren't well known. In 2005, the South Koreans revealed they had experimented in the late 1990s with uranium enrichment. We all assumed Japan could go nuclear in about 15 days. Who doubts that South Korea, if they wanted to, could do the same thing? There has to be a point at which these countries start deciding, we cannot afford to stay on the nuclear sidelines.

GIGOT: All right, but then what's the strategy? What should we do?

HENNINGER: I think the United States should take the position that you're dumping the responsibility for all of this on us. We're the only country that —

GIGOT: These other countries are. China, China in particular.

HENNINGER: China, Russia with Iran. And I think the United States should say, we're going to pursue a regime that includes very severe sanctions on North Korea. And if you don't do that, we are going to bomb that reactor.

GIGOT: So a quick military action on it the —

HENNINGER: That reality, I think, has to exist or nothing will happen.

STEPHENS: That reality has to exist because the proliferation from North Korea, not just to states like Iran, Burma, Syria, but also to, quote, "non-state actors," terrorist groups is a real one. The other reality is that we have to make it the policy of the United States to seek the reunification of the Korean peninsula, the dissolution of the North Korean state. And we have some advantages here. This North — the North Korean economy is under unprecedented strain. There are reports from numerous sources that they are — have major shortages of hard currency, which they need to buy commodities and which they need to buy the —

GIGOT: So what you're saying is they're vulnerable?

STEPHENS: They're vulnerable. Stuart Levey, the undersecretary of the Treasury, has been systematically going after their sources of hard currency. We know this worked before when we put the squeeze on Banco Delta, Asia.

GIGOT: Right.

STEPHENS: We should be doing more of it. And, importantly, we have to make sure that the Chinese understand our seriousness, because they're enablers currently of the North.

GIGOT: Let me read you something from Jimmy Carter who wrote in The Washington Post this week: "The alternative is for North Koreans to take whatever actions they consider necessary to defend themselves from what they claim to fear most, a military attack supported by the United States, along with efforts to change the political regime." The exact opposite of what you're describing. "We have to negotiate." What do you think about that?

HENNINGER: Well, I hope no one is listening to Jimmy Carter. I doubt too many people are anymore.

But, you know, the Carter problem raises an interesting analogy. It was just about a week ago, Paul, that Barack Obama was in Seoul, South Korea, with the leaders of the Asian nations.

GIGOT: Right.

HENNINGER: And he failed to get a free-trade agreement with the South Koreans. And as we wrote at the time, the president of the United States accomplished less in that meeting than any president that we can recall. And you have a weakened president whose stature has fallen in that part of the world and now he's going to lead negotiations to get North Korea to stand down? It's going to be harder.

GIGOT: All right, Dan.

We have to take one more break. When we come back, our "Hits and Misses" of the week.

(COMMERCIAL BREAK)

GIGOT: Time for "Hits and Misses" of the week — Dan?

HENNINGER: Paul, a big hit to the American people for forcing the American government to get serious about protecting us from terrorists. There was an interesting poll in The Washington Post this week that said 70 percent of people want profiling done at the airport as well. What that tells me is that they understand that these scanners and these pat-downs are not going to get the job done, that the problem is bigger than that. And what the Americans are saying, look, stop harassing innocent people and start going after the truly bad guys through surveillance and harsh techniques that get them before they get us.

GIGOT: All right.

Bret?

STEPHENS: Nancy Pelosi in the last few weeks has had one thought in her mind and that's, don't touch my junket. Now that she's soon no longer going to be the speaker of the House, she will not have access to the military aircraft she used 38 times in 2009 to fly back to her district in San Francisco. That was a privileged reserved for the speaker. She's lost it. John Boehner says he will, as speaker, fly commercial, even though he would be entitled to a military aircraft. It's a good step back from the imperial Congress that we had before, which led to this kind of excess.

GIGOT: All right.

Kim?

STRASSEL: A miss to the Obama administration for what can only be described as the second Detroit bailout. The news came out this week that the White House, the past two years, has been — bought nearly 25 percent of all in G.M. and Ford's hybrids. Why is this? Because Americans don't want to buy these things. They cost too much. They're puny. And so, the White House has been stepping into bolster this market of products that they are insisting Detroit make.

GIGOT: All right.

Bret, the speaker can afford to fly first class, I would think.

(LAUGHTER)

GIGOT: That's it for this week's edition of the "Journal Editorial Report." Thanks to my panel and to all of you for watching.

I'm Paul Gigot. We hope to see you right here next week.

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